Banking regulators continue probe at firm's headquarters

Attorney denies theft

In the first fallout from its $750 million currency trading loss, Allied Irish Bank will take control of Allfirst Financial Inc.'s treasury unit, the Dublin, Ireland-based parent company announced after an emergency board meeting yesterday.

Meanwhile, bank examiners from the state and Federal Reserve were at Allfirst's headquarters on South Charles Street, performing financial forensics in an effort to determine how trader John Michael Rusnak, 37, might have been able to beat the bank's system and hide mounting losses with a series of phony trades.

The FBI and U.S. attorney's office continued their investigations, though they remained mum about progress. Rusnak has not been charged with a crime.

Rusnak's attorney, David B. Irwin, said that his client stole no money.

Irwin also said that Allfirst was grossly overstating the value of the money lost in currency trades.

But the story kept Baltimore in the international media spotlight for the second-straight day, as overseas journalists again converged on Allfirst's headquarters - even stalking bank tellers and other employees on city streets - and on Rusnak's Mount Washington home.

Allfirst said Wednesday that it was out $750 million at the hands of Rusnak, a bank trader who it said had lost the money last year in a series of errant bets on such foreign currencies as the Japanese yen.

The losses went undiscovered, even as they mounted, because Rusnak faked purchase orders for securities that would have yielded offsetting profits, the bank said.

As the biggest case of banking fraud since 1995, when 28-year-old Nick Leeson brought down staid Barings Bank after his trades ballooned into a $1.4 billion loss, AIB had to leave no doubt it was moving decisively to fix the problems that have sullied its reputation in the world's financial markets.

"The board has expressed its extreme disquiet that controls and supervision of the treasury operations at Allfirst failed to uncover, at a far earlier stage, the fraudulent activities, which resulted in the losses sustained," AIB's board of directors said after the emergency board meeting in Dublin. "While accepting that these fraudulent activities were complex and may well have involved collusion and conspiracy, the board is determined that effective remedies be implemented as a matter of urgency."

For now, that means interim Allfirst Treasurer Pat Ryan, flown in from AIB in Ireland when the losses were discovered, will report directly to the parent company. Ryan's predecessor, a treasurer who is one of four Allfirst employees suspended because of the scandal, had formerly reported to Allfirst Chief Executive Susan C. Keating in Baltimore.

No other changes are planned locally, where currency trading remains suspended, said Philip H. Hosmer, the local spokesman for Allfirst.

AIB's board also said yesterday that it will appoint an eminent businessperson to lead a month-long investigation at Allfirst.

On the New York Stock Exchange yesterday, AIB gained $1.19, or more than 6 percent, to close at $20.96. On Wednesday, AIB lost $3.78 to close at $19.77.

Rusnak, the trader, has not been to work since Friday, and will be fired when the bank is next able to meet with him, Allfirst officials have said.

Irwin, Rusnak's attorney, said yesterday that his client has been unfairly depicted in press accounts on several continents, some of which have intimated that he absconded with millions of Allfirst's dollars, and then disappeared in the middle of an investigation. Accounts in the British press yesterday described Rusnak as having surrendered to the FBI, which is also false, Irwin said.

"He did not turn himself in. There's nothing to turn himself in on," Irwin said. "There are no charges, and no warrant."

According to Irwin, once the facts are in, there will be no allegations of theft. And if there are any trading losses, they aren't of the magnitude the bank has alleged, he said. As for Rusnak's whereabouts yesterday, Irwin said he assumed that he was home in Mount Washington.

Rusnak was seen leaving the house, on the 6000 block of Smith Ave., at mid-afternoon, driving away in a red Chevrolet Tahoe.

AIB Chief Executive Officer Michael Buckley reacted angrily to a question about Rusnak's claims that his actions were not criminal.

"There is no doubt that John Rusnak was involved in fraudulent activity whether he benefited from it or not," Buckley said. "It was fraud."

Since the news of the losses broke, people who know Rusnak expressed surprise that he would be involved in anything criminal.

Rusnak graduated from Bucknell University in 1986, with a degree in economics.

At Bucknell, Rusnak was "someone that people would call a good guy. I recall that he navigated the institution and his fellow students seamlessly," said Edward Robinson, who was the president of Rusnak's college class and is now a senior adviser for a Boston-based philanthropic organization. "He was a quiet but active kid."